Budget better
Becoming a better budgeter can help you save more, invest more and get ahead on your home loan. To stay on top of your finances, there are two broad approaches you can take.
The first is to plan how much you’ll spend on each category (groceries, entertainment, etc) each month. If you stick to your budget, you’ll know in advance how much you’ll save.
1. Track Your Expenses:
- Record all your expenses, big and small, for at least a month. This will give you a clear picture of where your money is going.
2. Create a Realistic Budget:
- Based on your tracked expenses, create a budget that outlines your income and all necessary expenses. Include categories such as rent or mortgage, utilities, groceries, transportation, and entertainment.
3. Differentiate Between Needs and Wants:
- Distinguish between essential expenses (needs) and discretionary spending (wants). Prioritize your needs and allocate money to wants after covering necessities.
4. Set Financial Goals:
- Establish short-term and long-term financial goals. Whether it's saving for an emergency fund, paying off debt, or saving for a vacation, having clear goals can motivate you to stick to your budget.
5. Review and Adjust Regularly:
- Regularly review your budget to see how well you're sticking to it. If needed, adjust based on changes in income, expenses, or financial goals.
6. Use Technology:
- Leverage budgeting apps and tools to help you track expenses, set budget limits, and receive alerts when you're approaching or exceeding your limits.
7. Prioritize Debt Repayment:
- If you have debts, prioritize paying them off. Allocate a portion of your budget to debt repayment to gradually reduce outstanding balances.
8. Negotiate and Shop Smart:
- Regularly review your bills and consider negotiating for better rates. Be mindful of your spending by shopping smartly, looking for deals, and avoiding impulse purchases.
The second approach is to throw out the budget and focus on saving instead:
- Decide how much money you want to save each month
- Set up an auto-transfer to move this amount of money from a transaction account to a savings account whenever your salary gets paid
- Spend whatever is left in the transaction account, however and whenever you like
- Include building an emergency fund in your budget. Having savings set aside for unexpected expenses can prevent you from going off-budget during emergencies.
The first approach suits people who want to pay close attention to their money, while the second is for people who want to ‘set and forget’ their savings.
Whichever approach you take, a good place to begin is to review your last 12 months of expenses, to see how much you’re spending and on what things. You can use that information to identify areas of wastage and set savings targets.
Take the time to educate yourself about personal finance. Understanding basic financial principles can empower you to make informed decisions and improve your financial situation.
If you have a family, involve them in the budgeting process. This helps ensure everyone is on the same page and committed to financial goals.